Fruits of perseverance: ITCs Sivakumar at a Choupal Fresh outlet

A . PRABHAKAR RAO /www.indiatodayimages.com

hen you run Corporate Indias largest, most ambitious and most celebrated rural initiative, you better know the following: That adversities could crop up unexpectedly. That some adversities can be turned into opportunities. And that every little opportunity has to be made most of. It was so with ITC, the company behind the e-Choupal initiative that had reached four million farmers in six states in six years till 2006. At one point, the company was opening 5-6 e-Choupals a day and had a target of reaching 100 million farmers. That hit a roadblock of sorts in 2006-07. The very basis of the e-Choupals core businesscom-

modity sourcing from farmers directlywas endangered with the government clamping down on companies trading with farmers directly. The trigger for the government reaction was the spike in wholesale price inflation, which rose close to double-digit figures in case of some commodities in 2006-07. Though the impact varied from state to state, the larger foreboding was loud and clear: The acts of government taken in the national interest could hobble e-Choupals anchor business, even if temporarily. What does the company do then? Roll out plans for Version 3 of e-Choupal that will add at least two more anchor businesses to start with and deepen the engagement with individual farmers way beyond what was being done in Version 1 and 2. The idea is to discover new anchor businesses and try

1 2
>>VERSION 1.0
The Start
IDEA: To give power of scale to small farmers by aggregating them as sellers (of produce) and as buyers (of farm inputs) FARMERS GAIN: They get bargain and choicethe two key virtues of competition ITCS GAIN: Access to inputs for its agri business; offer the use of network to other companies
and insulate the e-Choupal model from the risks of reversal in governments agri reforms, says S. Sivakumar, Chief Executive, Agri-Business, ITC, and the man who scripted the e-Choupal model of business. Technologically, it would mean adding mobile phones to the existing channels of Net-based computers and

1,2,3 of e-Choupal

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3.0 23
Version
ITC is prototyping a new script for its e-Choupal initiative to take engagement with farmers to the next levelco-creating with farmers and harnessing their entrepreneurship. E. KUMAR SHARMA
>>VERSION 2.0 >>VERSION 3.0
The Scale-Up The Deepening
REACH: By 2006, 40,000 villages covering 4 million farmers OFFERING: Network now offered five services: Information: weather, price, etc. Knowledge: farming methods, soil testing, etc. Purchase: Seed, fertiliser...to insurance Sales: Farmers sell crops to ITC centres Other: Cattle care, water harvesting, women employment etc NEW BUSINESSES: Add two new anchor businesses: 1) Rural jobs and employability and 2) Personalised agri services. Plus strengthen existing commodity sourcing MORE INTERACTION: Through Choupal Saagars and Haats and via mobile phones NEW TECHNOLOGY: Use of especially enabled mobile phones, in addition to PCs, for two-way interaction with farmers; use of analytics; new partners
Choupal Saagars, the one-stop shops catering to all the needs of the rural community. As the company scoped around for new opportunities, it found manysome emerging from the adversities that have got it rethinking. These opportunities not only make transition to Version 3 possible, but also help modify the existing strengths of Version 1 & 2 (see box above). Its spotting of these opportunities and turning them into current and future businesses that has become a case study in persevering with rural India.

e-Choupal

Opportunity: Farmers willing to invest more Response: Offer them services they really
need, and are willing to pay for

Though the average farm productivity is still low in India, the last 10 years have seen an unprecedented rise in farmers income. This has been driven by a record increase in the price of agricultural produce (governments minimum support prices for food grains alone have risen by 30-90 per cent in two years) and a

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good run with monsoonsthis years deficiency notwithstanding. Higher income means farmers are ready and willing to invest moreand one of their critical investment needs is in getting agriculture services. So far, agri services like helping farmers improve crop techniques and advice on ways to improve farm productivity have mostly been provided by the government and for free. But the quality of service has been poor, rendering them useless. In e-Choupals Version 2, services like weather, agri inputs and pricing were provided through Sanchalaks (e-Choupal coordinators) through multimedia presentations made on village computers, but these services were customised only for crops and regions. Besides, no money

mation on, say, the type of soil, the date of sowing and the kind of crop to the company. The company can then process these inputs and give him very specific advice. Imagine getting such inputs from millions of farmers across the country. Apart from creating economic value by offering personalised services to farmers, the data thus generated could be of immense value to companies selling farm inputs (e.g. seeds, fertilisers, pesticides), financial firms and government planners. In sum, personalised agri services will add a second anchor business to e-Choupal keeping its core philosophy of complementing the farmers good with the companys good intact.

ITC is also working on the skills training business, which will be rolled out over the next few months. Rural India has a huge untapped talent pool and Rozgarduniya.com will provide a platform to bridge the demand and supply gap. Job opportunities available to the rural population through this initiative will help improve employment in addition to facilitating corporate expansion plans in the rural market, says Sanjay Modi, Managing Director, Monster.com (India, Middle East and Southeast Asia).

Opportunity: Faster diversification by farmers into horticulture Response: Increased push to retail of fruits and vegetables
Sourcing farm produce is e-Choupals key and original anchor business. But instead of purely trading in commodities, the sourced produce was used as inputs for ITCs food business. So, for instance, wheat procured through farmers finds its way into Aashirwad atta. With farmers around e-Choupals diversifying their produce, ITC got the opportunity to plan forward integration in more ways than one. We moved into Choupal Fresh through forward integration with the horticulture farmers, says Sivakumar. Choupal Fresh (it is still in a pilot phase with six outlets in Hyderabad) is more fresh than other chains since vegetables and fruits make up 80 per cent of products sold through its outlets, compared to 20 per cent in most other fresh chains. The forward integration is also evident in the export of processed foods and fruits (mango and other fruit pulps). Many of our products and businesses have backward integration with the e-Choupals. Bingo, for instance, is made from potato sourced entirely through the e-Choupals. Similarly, the export of processed foods and fruits is dependent on the e-Choupals now, says Sivakumar. Also, starting mid-2008 ITC has

Opportunity: Villages closer to towns moving away from agriculture Response: Provide job information and skill development services in villages
With rural youth, especially in villages closer to towns, shunning agriculture and farm labour, ITC sees vast opportunities in using e-Choupals as centres for information on job vacancies andeventuallyproviding skills that help increase the employability of rural youth. So, e-Choupals are also being geared as rural employment exchanges, which will connect the rural

Farmers are ready and willing to invest more, especially in personalised agricultural services.
was charged for these services. Under Version 3, the plan is to deliver personalised agri services to individual farmers via mobile phones. ITC has recently signed a memorandum with Nokia for this. The company already powers some of Nokias Life Tools meant for farmers. Right now the information dissemination is limited and one-wayfrom company to the farmer. ITC plans to make the information flow two-way. A farmer will be able to provide inforyouth with jobs. This will be a new anchor business with a clear revenue model. Already, on August 11, 2009, e-Choupal in alliance with Monster India, the leading online career and recruitment resource, has launched Rozgarduniya.com, a website to enable job seekers in rural India to access and apply for jobs through e-Choupals. In less than a month of the service, over 1,200 job openings from 52 companies were made available through this channel.

SHEKHAR GHOSH

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Opportunity: Improved rural roads, courtesy Bharat Nirman project Response: Increase the coverage area of each e-Choupal
The e-Choupals, right from Version 1, worked in a hub and spoke model. Each e-Choupal and its Sanchalak catered to several villages nearby. The average number of villages catered by an e-Choupal so far were six. With massive government investments in rural roads, connectivity between villages has improved. This allows ITC to potentially add more spokes to each of its hubs. Network reach can be easily expanded without making much fresh investments into it. Many other Indian companies that had once entered rural markets, and had subsequently quit, are re-entering. Tata Chemicals, Mahindra & Mahindra are two such examples. How does ITC plan to respond to this competition? By making better use of its unique social capitalthe Sanchalak and the Samyojak framework. In the Sanchalak, ITC has its own man in the 40,000 villages it operates in. These men can steer e-Choupal into areas and activities the competitors cannot. For instance, the Sanchalaks will be the key men in organising Choupal Haats.

SATISH KAUSHIK

entered personal care products in a big way. The e-Choupal network is a platform to take these products to consumers in the countryside. These branded products will also be introduced at the Choupal Haats (these are temporary rural gatherings meant for interaction and product and service experience as against a Choupal Saagar, which is a permanent and multiple rural services facility that includes an agri produce warehouse, retail hypermarket and a fuel station), which are going to be launched over the next couple of months. Among the things planned to be introduced through the Haats are branded personal care products like shampoos.

Commentary by C.K. Prahalad

BUILDING CAPABILITY
TC e-Choupal is an interesting case for four reasons. It demonstrates: 1) How, in India, we can connect subsistence farmersmicro producers to regional and national markets; 2) How connectivity can be transformational and build trust between a large firm and farmers and lead to an active and evolving collaboration; 3) How to scale operations in rural India and most importantly; 4) How to build capabilities of both the firm (ITC) and the farmer community systematically; learning by doing. I believe that ITC e-Choupal has gone through three stages of evolution. It started with a sourcing strategy through direct connect with farmers. It was one wayfrom the farmers to the firm. The second stage involved selling to farmers what they neededthrough e-Sagars. They had to experiment to find out how much of entrepreneurial worksoaps to fertilisersthe village leaders are willing to undertake to sell without sacrificing their trusted role in the community. Now, it is embarking on the third phase where it is going beyond selling. It is laying the foundation for building unique personalised and co-created experiences for single farmers. They will be able to work with each farmer to co-create what he/she wants to improve their economic opportunity as well as experiences. In each of these stages, ITC had to build ever more sophisticated IT systems and analytics. Now they will be able to cater to a single familys unique needs. All the while, ITC also had to build ever more sophisticated logistics systems. The focus of the firm on the farmer has also undergone a big shift during the three stages. It has changed from: micro producer to micro producer and consumer to micro producer, consumer and entrepreneur. This transformation is an integral part of ITCs impact on rural India. Today, ITC has the trust, domain expertise, scale, scope, IT and logistical infrastructure to move forward to build a true engagement model with Indian farmersa dialogue that allows farmers to become micro innovators and investors as well. When we engage millions of farmers, we will discover that an interesting subset of them are willing to innovate be able to offer ideas for improving the system. This is no different from application developers developing solutions for Apple. I believe that we can unleash the local knowledge-based innovations in rural India by using an interactive platform such as ITC. I see a huge opportunity for continuous innovation and organic evolution. (The author is Paul and Ruth McCracken Distinguished University Professor, Ross School of Business, University of Michigan.)

...
relationship with the farmers

Opportunity: Mandis have improved since

e-Choupal initiative started Response: Leverage the unique direct When the e-Choupal initiative was started, the operations at mandis

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were non-transparent. From weighing of farmers produce to its gradationthat impacted it pricingmost operations were arbitrary and based on archaic methods. Over the past couple of years, the mandis have modernised and become more transparent. Where does this leave e-Choupal, which reached out to the farmers on the plank of transparency and fair valuations for their crops? A unique advantage ITC still has over mandis is its direct and continual relationship with the farmers in its network. With rising awareness and concerns about food safety, this direct relationship is extremely valuable for partners who either source products directly from the e-Choupals or use ITCs farm products generated through the e-Choupals. For instance, an importer of processed foods in Europe can trace ITC food products all the way to the farm it came from to satisfy itself of the food safety standards. By making these and a few other mid-course corrections, ITC is hoping to morph e-Choupal into an allweather venturerelatively de-risked from regulatory flip-flops and even market swings. But the success of this restructuring will critically depend on how much further it can deepen its existing relationship with four million farmers so that it can extract more value out of this network than it has been able to do till nowvalue for itself, for the farmer and all the current and future network partners. Sivakumar has interesting calculations to share. By personalising its relationship under e-Choupals Version 3, ITC can increase its reach from the existing 4 million farmers to 16 millionwithout even adding any village to its network. How? Once personalised, each farmers family (assuming a wife and two kids) will come into the e-Choupal network as either a consumer or a contributor of some sort. That will give an addi-

Commentary by D. Shivakumar

THE MOBILE PHONE IS A RURAL LIBERATOR

he biggest problem the farmer faces today is that he does not have cheap and easy access to information. The information instead lies with the middleman and therefore the producer, that is, the farmer cannot get the best prices or the knowledge required to increase his yield. To access that information, the farmer would need to spend Rs 30-40 a day travelling a few hours to mandis (agricultural marts), and even then he may not get all the information he needs. This is what economists often describe as the poverty penalty. What we do in Nokia Life Tools, for example, which is working with partners such as ITC e-Choupal, is that we have created a back-end to generate a vast amount of reliable information to the farmer. The farmer is willing to pay for this information because it improves his price realisation as well as gives him knowledge. But the mobile phone is a lot more than just a liberator of information in rural India. Being the primary, sometimes only digital device in the homes of rural India it is also an entertainment device, and given the vast amounts of rural to urban migration, it is increasingly being used as a safety and security device for rural women to keep in touch with their husbands, brothers and sons. And it is also a learning tool. There are 180-190 million rural youth today and many of them do not want to be farmers. They see the mobile phone as a learning device that gives them knowledge, teaches them new things, even functional English. They see the mobile phone as their passport to the formal economy. All in all, through its ability to do multiple things, the mobile phone has economically liberated rural India and with more information services and applications coming on-stream over the coming months it will continue to do so. (The author is the Managing Director of Nokia India; the company is ITCs partner in the new version of e-Choupal)

SATISH KAUSHIK

...
tional reach of 12 million! Of course, all these will not happen in one go and overnight. Some of the modifications mentionedlike setting up of rural employment exchanges have already been implemented. Some are going to be added soon. The first Choupal Haat will be organised in November. The two-way mobile application and its full operationalisation will take some more time. But given the blueprint and flexibility demonstrated so far, ITC should be able to achieve much of what it plans to. And in doing so, the company will continue to be a leading and unique example of Corporate Indias engagement with rural India.

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